The shares of Unilever plc (NYSE: UL, LSE: ULVR) declined $5.63 or 9.09% to close at $56.28 Tuesday after the consumer goods company cautioned it would not be able to reach the sales targets in 2019 and face a difficult beginning next year. Unilever, considered as a reliable brand on the equity market, further stated that growth in 2020 would be ‘second-half weighted,’ implying that there could be more earning alerts.
The company owns roughly 400 brands covering beauty and personal care, foods, home care, and Refreshment products with sales in over 190 nations. More than half of its revenue is generated from developing and emerging markets.
The London-headquartered company has accused the economic downturn in South Asia, one of its main markets, and a difficult business environment in West Africa as the main reasons for the downward revision of the 2019 forecast. The Anglo-Dutch company now anticipates 2019 sales growth to be beneath its earlier outlook of the lower half of a 3% to 5% range.
In October 2019, the company failed to meet third-quarter sales forecasts due to a slowdown in India and China. The Ben & Jerry’s owner also posted a decline in ice cream sales. Slowing consumer spending in India, which has a population of over 1.30 billion, is having a negative effect on the manufacturer of almost all kinds of products, from toothpaste to trucks, as the third-largest Asian economy is growing at its slowest pace in six years.
Unilever has a 67% stake in the Indian subsidiary Hindustan Unilever Ltd. The largest consumer goods enterprise in India pointed to market slowdown and supply chain interruptions in an October 14th earnings call, with CFO Srinivas Phatak pointing out to analysts that the “near-term demand outlook continues to be challenging.”
In the past few quarters, Unilever recorded strong growth in emerging markets, which was his primary objective after Alan Jope took over as CEO in 2018. The company found it hard to grow in developed markets, with ice cream sales affected by the latest terrible weather and the hair grooming products facing severe competition in the US.
Unilever stated that it is on track to achieve its 2020 profit objectives and anticipates winning back market share in North America. The company also faces a tough business environment in West Africa.
Jope, who took over the reins from Paul Polman at the beginning of this year, also warned: “Looking ahead to 2020, growth will be second-half weighted.”
The CEO further stated that he anticipates the first half of 2020 to fare better than this quarter. Still, the first-half growth is forecast to be below 3%. The company asserted that its margin, earnings, and cash will not be affected.
Analysts are not convinced. Russ Mould, investment director at AJ Bell, opined that “even a bucket of Domestos couldn’t clean up the stink created by Unilever’s trading update. It is easy to see the expectation for next year to have a second-half weighting translate into a further warning if sales do not recover.”
Furthermore, in developed economies, the company struggles to grow as consumers are turning away from popular brands and shift towards niche brands or other label products while trimming expenses.
To sum it up, Mould stated, “The reality is the consumer goods giant has been struggling to deliver organic growth for some time.” The downward revision of the growth forecast is anticipated to keep the stock bearish in the short term.
The historical price chart indicates that the stock is facing resistance at 62. The next support is anticipated only near 53. The stochastic oscillator is in the bearish zone. Therefore, we are expecting the stock to remain in a downtrend in the near-term.
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